Dutch Disease in the Services Sector

doi:10.1017/CBO9781316493854.005

4 - Dutch Disease in the Services Sector

Evidence from Oil Exporters in the Arab Region

Published online by Cambridge University Press: 05 July 2016

Ibrahim Elbadawi and

Hoda Selim

Ndiamé Diop and

Jaime de Melo

Show author details

Ibrahim Elbadawi: Affiliation:
Dubai Economic Council and Economic Research Forum (ERF), Egypt
Hoda Selim: Affiliation:
Economic Research Forum (ERF), Egypt

Book contents

Get access

Summary

Abstract

This chapter shows that as per capita incomes increase, services sectors in resource-rich countries of the Arab World have declined as a share of gross domestic product (GDP) and of non-mining GDP. This negative relationship between the share of services in GDP and income per capita is opposite to global patterns and is linked to the large rents generated by natural resources in these countries. A large number of services sectors can now be contracted offshore or can be produced by temporary movement of service providers, implying that countries need to be competitive to maintain domestic production. Since rents from natural resources inflate wages and non-tradable prices, they tend to discourage domestic production of tradables, both goods and services. As the chapter highlights, the negative effect of rents are compounded by the negative impact of policy and regulatory restrictions on entry, and of business conduct on the development of services sectors. These restrictions create rents captured by “protected incumbents” or increase the real cost of producing services – in both cases inflating the price of services.

Type: Chapter
Information: Understanding and Avoiding the Oil Curse in Resource-rich Arab Economies , pp. 82 - 102

DOI: https://doi.org/10.1017/CBO9781316493854.005 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2016

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Book purchase

Temporarily unavailable

References

Acemoglu, D., Johnson, S., and Robinson, J.. (2005). Institutions as a Fundamental Cause of Long-run Growth. In Handbook of Economic Growth, vol. 2, Aghion, P. and Durlauf, S., eds., pp. 385–472. Amsterdam: North-Holland.Google Scholar

Amin, M., and Djankov, S.. (2008). Democracy and Reforms. Policy Research Working Paper 4835, World Bank, Washington, DC.Google Scholar

Arnold, J. M., Javorcik, B. S., and Mattoo, A.. (2011). Does Services Liberalization Benefit Manufacturing Firms? Evidence from the Czech Republic. Journal of International Economics 85 (1): 136–46.CrossRef Google Scholar

Arnold, J. M., Mattoo, A., and Narciso, G.. (2008). Services Inputs and Firm Productivity in Sub-Saharan Africa: Evidence from Firm-level Data. Journal of African Economics 17 (4): 578–99.CrossRef Google Scholar

Baumol, W. J. (1967). Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis. American Economic Review 62 (June): 415–26.Google Scholar

Bolt, K., Matete, M., and Clemens, M.. (2002). Manual for Calculating Adjusted Net Savings. Washington DC: Environment Department, World Bank.Google Scholar

Borchert, I., Gootiiz, B., and Mattoo, A.. Forthcoming. (2011) Policy Barriers To International Trade in Services: New Empirical Evidence. Washington, DC: World Bank.Google Scholar

Chenery, H., Robinson, S., and Syrquin, M., eds. (1986). Industrialization and Growth: A Comparative Study. Oxford, U.S.: Oxford University Press for the World Bank.Google Scholar

Chenery, H., and Syrquin, M.. (1975). Patterns of Development, 1950–1970. Oxford, U.K.: Oxford University Press for the World Bank.Google Scholar

Corden, W. M. (1984). Booming Sector and Dutch Disease Economics: Consolidation and Survey. Oxford Economic Papers, 36: 359–80.CrossRef Google Scholar

Corden, W. M. and Neary, J. P.. (1982). Booming Sector and De-industrialisation in a Small Open Economy. Economic Journal, 92(368, December): 825–48.CrossRef Google Scholar

Dee, P. (2005). A Compendium of Barriers to Services Trade. Paper prepared for the World Bank, www.crawford.anu.edu.au/pdf/Combined_report.pdf.Google Scholar

Francois, J., and Hoekman, B.. (2010). Services Trade and Policy, Journal of Economic Literature, American Economic Association 48(3, September): 642–92.Google Scholar

Freund, C., and Bolaky, B.. (2008). Trade, Regulations, and Income. Journal of Development Economics 87 (2, October): 309–21.CrossRef Google Scholar

Gelb, A. (2011). Economic Diversification in Resource Rich Countries. Center for Global Development, Washington, DC, www.imf.org/external/np/seminars/eng/2010/afrfin/pdf/Gelb2.pdf.Google Scholar

Ghani, E., and Kharas, H.. (2010). Service-led Growth in South Asia: An Overview. In The Service Revolution in South Asia, Ghani, E., ed. New York: Oxford University Press.Google Scholar

Havrylyshyn, O. (2010). Does the Global Crisis Mean the End of Export-led Open-economy Strategies? Paper prepared for World Bank, Washington, DC.Google Scholar

Hoekman, B., and Mattoo, A.. (2008). Services Trade and Growth, Policy Research Working Paper Series 4461, World Bank. Washington, DC.Google Scholar

Hoekman, B., and Ozden, C.. (2009). The Euro-Mediterranean Partnership: Trade in Services as an Alternative to Migration? Policy Research Working Paper Series 5049, World Bank. Washington, DC.Google Scholar

Lopez-Calix, J., Walkenhorst, P., and Diop, N.. (2010). Trade Competitiveness of the Middle East and North Africa. Washington, DC: World Bank, Directions in Development.CrossRef Google Scholar

Marouani, M., and Zaki, C.. (2011). Trade in Mode 4 in MENA and Barriers to Labor Mobility. Draft paper.Google Scholar

Rodrik, D. (2008). The Real Exchange Rate and Economic Growth. Brookings Papers on Economic Activity 2008 : 2.Google Scholar

World Economic Forum and OECD. (2005). Arab World Competitiveness Report. Geneva: World Economic Forum.Google Scholar